Tuesday, April 12, 2011

PT. Indo Tambangraya Megah Tbk (ITMG)

by Kim Eng Securities

􀂃 We recommend BUY at target price of Rp65,025 for Indo Tambangraya. We like the stock due to: 1) rosy earnings outlook with a CAGR of 77% over the next two years; 2) clean balance sheet and strong cash position; and 3) strongest ROE in the sector at 46% and 48% for FY11 and F12, respectively.

Our View

􀂃 We estimate coal output to be 25‐27.3m tons in FY11‐12, or a CAGR of 11%, with additional production coming mostly from Trubaindo, which has higher CV quality than Indominco (hence higher price), but lower stripping ratio (lower production cost). The company has re‐opened the Jorong mine last year and expects to start commercial production at the Bharinto mine in 4Q11.

􀂃 Coupled with an increase of 12‐18% in coal price for FY11‐12, earnings should rise by 124% and 39% to US$457m and US$634m for FY11 and FY12, respectively, after factoring in cash cost increases of 4‐8% to US$53.6‐56.7/ton.

􀂃 We like its high dividend payout, which recently announced at 75% of FY10 earnings. We reckon that acquisition of a coal concession will be a catalyst for the stock.

Action & Recommendation

􀂃 Trading at 13.4‐9.6x FY11‐12 PER, the cheapest compared to its peers, and promising to generate ROE of 45‐48%, the stock is the most attractive in the sector. We derived our TP of Rp65,025, based on the mine‐life, with WACC of 11%. Our TP implies 13.0x FY12 PER – offers 35% upside potential. BUY.

No comments:

Post a Comment